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Lonza's virus factory shows gene therapy's Texas-sized promise

ZURICH (Reuters) - Swiss drugmaker-for-hire Lonza (LONN.S) is betting that trillions of customized viruses made at a giant factory in Texas will be the lucrative raw materials of a medical revolution.

The 121-year-old Basel-based contract manufacturer (CMO) has a long history supplying ingredients for other companies’ drugs. When its 250,000-square-ft Houston plant opens on Tuesday, it will be able to mass produce key components for emerging gene and cell therapies to treat everything from blindness to cancer.

It will be biggest factory of its kind in the world.

As the industry grapples with a shortage of engineered viruses needed to transport healthy gene material into the cells of sick people, Lonza is calculating demand will remain strong, from cash-strapped early-stage companies to more established clients fearful of getting caught in the squeeze.

“Making the investment to build in-house is not an easy decision for a clinical-stage company,” Lonza emerging technologies head Andreas Weiler told Reuters.

The strategy is not risk-free. The use of gene-based medicine remains in its infancy and hitting quality standards is tough. But the Association of the British Pharmaceutical Industry estimates the global cell and gene therapy market will be worth up to $21 billion annually by 2025.

Pharmaceutical and biotechnology companies are racing to develop therapies that rely on materials like those Lonza sells, for treatments that command some of the highest prices in medicine.

Spark’s (ONCE.O) blindness treatment Luxturna, approved in December, runs at $850,000 per patient in the United States, while Swiss drugmaker Novartis’s (NOVN.S) CART-T cell therapy Kymriah, approved for children with leukemia, costs $475,000.

COSTLY BUILD
Industry figures show that other CMOs, as well as drugmakers including Pfizer (PFE.N), bluebird bio (BLUE.O) and BioMarin (BMRN.O), are pumping hundreds of millions of dollars into new facilities of their own.

Access to gene therapy manufacturing is also spurring M&A. Novartis said on Monday its $8.7 billion deal for AveXis (AVXS.O) was driven not just by the U.S. company’s potential blockbuster gene-fixing therapy but also its newly built facilities in the Chicago suburbs.

Last year’s wave of approvals prompted U.S. Food and Drug Administration (FDA) Commissioner Scott Gottlieb to proclaim the sector at a “turning point” after a long haul that has seen more than 1,000 cell and gene therapy trials approved in the past decade, according to the Journal of Gene Medicine.

One telling sign that the industry is maturing is the growing commercial focus of trials. In Britain, 42 percent of cell-and-gene therapy trials in 2017 were commercial, up from just a quarter in 2012, the UK group Cell and Gene Therapy Catapult said.

The downside of increased interest is an industry-wide shortage of cell and gene therapy products, including complaints about two-year waits for a batch of viral vectors.

“The entire cell-based manufacturing market is currently undersupplied,” said Jens Lindqvist, an analyst at N+1 Singer in London.

As a result, academics face challenges getting materials at prices they can afford, said Dr. Uta Griesenbach, an Imperial College molecular medicine professor and president of the British Society for Gene and Cell Therapy.

“It’s really an important bottleneck that needs to be addressed,” Griesenbach said. Otherwise, she added, “the development of advanced therapeutic medicinal products might slow down or come to a halt.”

SPREADING RISK
For investors, publicly traded CMOs like Lonza or Oxford BioMedica are vehicles to invest in the cell-and-gene therapy boom without exposing themselves to the risk of individual drug flops.

“They aren’t an all-or-nothing proposition, where a single therapy’s failure can lead to a 60 or 70 drop in a company’s stock inside of a day,” said Martin Lehmann, whose Zurich-based 3V Invest Swiss Small & Mid Cap fund owns Lonza shares. “Your upside might be a bit less with a CMO, but because Lonza is so broadly positioned, you are insulated from crashes.”

Lonza’s shares have risen 51 percent since the start of 2016, despite a recent dip.

Even so, things can go wrong, like last year when Lonza’s biotech manufacturing facility in Walkersville, Maryland, was hit by quality-control problems - and an FDA warning letter - that temporarily halted some production.

Another risk is that insurers and governments may push back on gene therapies’ high prices, reducing financial returns. Spark’s Luxturna has already been caught in critics’ crosshairs.

For most patients, “the cost is not in line with what’s considered cost-effective,” the healthcare value advocacy group Institute for Clinical Review said in January.

High prices mean such therapies, for now, remain largely suited for rare diseases.

Still, Novartis research chief Jay Bradner is optimistic treatments like his company’s Kymriah will evolve from being last-ditch options for desperate patients to more affordable weapons suited for mass maladies.

Industrialization in manufacturing procedures “will bring a revolution in access to these medicines”, Bradner said in an interview in January.

Lonza, which last year acquired PharmaCell, the Dutch CMO that helped produce the viruses behind Gilead’s Yescarta, is counting on that, too. Its new Houston site is five times larger than the group’s old Texas facility, bringing clinical and commercial supply under one roof.

“Cell and gene therapies will become mainstream,” Weiler said. “We already see this from the investments of our large pharma and biotech customers.”